Brokers, banks stage an advance

NicoleMaestri

NEW YORK (CBS.MW) -- Financial stocks joined the broader market and traded higher Monday as investors pushed aside worries over the widening probe into analyst research practices and dove into brokerage stocks.

Even Merrill Lynch, which for most of the day lagged the rest of the sector, closed in positive territory. Shares initially fell after New York Attorney General Eliot Spitzer said in a Sunday interview on ABC's "This Week" program that settlement talks with the brokerage
MER, -3.69%
are still far off. But shares rallied to close the session up 59 cents at $42.12.

Charles Schwab & Co. rose 4.7 percent after declining at the open. The discount brokerage
SC.H, -44.00%
said daily average trades declined 18 percent in April compared with the same month a year earlier. Schwab said in a release that last month's client daily average revenue trades were down 25 percent on a year-over-year basis.

Merrill Lynch analyst Judah Kraushaar said revenue remains very sluggish for the broker dealers, with the second quarter continuing to see slight volatility in the equity markets, light investment-banking action and weak asset-management results. Continued vigor in debt underwriting remains a bright spot, he said in a research note.

Kraushaar lowered his 2002 and 2003 earnings targets for Lehman Brothers
LEH
and Morgan Stanley
MWD, -1.04%
citing weakness in equity trading. Kraushaar also held his earnings target on Goldman Sachs
GS, -1.89%
steady, having lowered it two weeks ago.

"We continue to have positive ratings on all three of these stocks on the premise that earnings should begin to improve later this year," the analyst said, noting that relative price-earnings ratios "remain depressed" when compared against long-term averages.

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